4th Quarter Kings

In honor of our football team’s habit of leaving things until the 4^th quarter, I thought we’d talk about assorted tax strategies this week that tend to come up for review and discussion in the 4^th quarter. Rather than diving too deeply on any particular item, I thought I’d share a bit of “the catalog” that comes to mind for financial planners around this time of year.

Maximization of Employer Retirement Plans

It will come as no surprise to anyone working that the employer retirement plan remains one of the most convenient means of reducing current year or lifetime tax burden. In 2026 we’re capped at a $24,500 contribution to 401(k), 403(b), 401(a), and qualified 457 plans. Keep in mind that for those eligible for a 457 plan and another plan of like-type (i.e., the aforementioned 401(k), 403(b), and 401(a) plans) that you are eligible to make the maximum employee deferral of $24,500 in both the 457 and the like-type plan. This is especially important and for public employees of organizations like the City of Longmont and St. Vrain Valley School District.

By extension, for those running a small business on the side but also still working in a W2 employee capacity, there are some other employer retirement plan maximization options. In particular, the employee contribution limits for the ERISA profit sharing plans described above are not shared by other employer plans like the SEP IRA. So, for someone who is working a full-time job and eligible for a 401(k) or similar plan, it’s possible to maximize the employee contribution of $24,500 and then to also make a SEP IRA contribution through their side business.

For those who are solely self-employed, while a 401(k) remains the mainstay option for retirement plan savings, whether you ultimately elect to use a Solo 401(k) or Traditional 401(k) (for those with W2 employees) or whether you opt for alternatives like the SEP IRA or SIMPLE IRA, you should attempt to maximize your retirement plan contributions. Simply put, while reinvesting back into your business can be one of the most valuable financial opportunities available to you, it is meaningful for both tax and financial risk management reasons to diversify your wealth outside of the equity you’re building in your business.

Quick References for Common Retirement Plans

*For those earning more than $150,000 in 2026, catch-up contributions must be made as Roth contributions rather than pre-tax. This can still be valuable for lifetime tax reduction.

**SEP IRAs are solely funded by employers, so the 25% cap is of W2 wages for eligible employees, but is entirely funded by the employer. For self-employed individuals, there is a slightly more complex formula that is often simplified as saying “up to 20%,” but that is not strictly accurate. Consult with your financial planner or tax professional before finalizing a contribution to a SEP.

Establishment of Employer Retirement Plans

For those who are self-employed, establishing a retirement plan for your business if one doesn’t already exist can be the next valuable step. In particular, self-employed individuals enjoy some flexibility here, but those with employees may have additional statutory requirements for setting up a retirement plan. All of that said, opening a retirement plan for your small business can be a powerful tool in your tax-planning arsenal, so with the deferral rates and tax reductions noted above in mind, let’s look at the deadlines for setting up some retirement plans.

SIMPLE IRAs: Must be established by October 1^st of the current tax year, so if you’re reading this today you’ve got until tomorrow to get this set up! SIMPLE IRAs are probably not your first choice if you’re self-employed without employees, but for those employers with some tenured employees who want to offer a retirement plan with the opportunity for employees to participate, but while avoiding the compliance costs of a more robust retirement plan like a 401(k), a SIMPLE IRA is a good “first retirement plan” for that sort of business. Just keep in mind that SIMPLE IRAs have an employee cap of 100 employees, so if you’re running a business with a high headcount, it may not be applicable to your situation.

SEP IRAs: These are the most flexible for establishment. As noted in the footnote above, you have all the way until the tax extension deadline following the current tax year to establish and fund this type of plan. This gives you a lot of cash flow flexibility with respect to when you decide to create and fund the plan, rather than jumping straight into establishing the plan. SEP IRAs are also notable for allowing business owners to exclude potentially eligible employees for up to 3 years; while we don’t philosophically recommend giving yourself employer-level benefits while carving out your employees, it can still be a useful tool in a gap year where you’re building up toward wanting to offer benefits to employees but can’t afford to do so yet, while still wanting to take advantage of the tax planning the SEP IRA affords you.

SEP IRAs are typically most popular among small professional partnership businesses where all the partners are the employees and there are no non-partner employees, or in instances where the company has very short term tenure among employees with high turnover (thinking about seasonal employers, for example.) That said, once a business builds up a roster of long-standing employees, the SEP IRA can become very expensive since it is solely funded by employer contributions, so a promotion up into a 401(k) or similar plan is often recommended at that point.

401(k), 403(b), 401(a), and Qualified 457 Plans: All of the aforementioned plans are a variation of profit-sharing plan. Succinctly, 401(k) plans are the most common among private employers. You might find a 403(b) in a non-profit, charity, hospital, or school district, 401(a) plans are typically reserved for public sector entities like cities or municipalities, though some hybrid employers like the UC Health system offer 401(a) plans; and qualified 457 Plans are reserved for public entities like the City of Longmont and St. Vrain Valley School District.

Each of these plans has specific statutory guidance regarding establishment, but typically speaking, there are three material guidelines for setting up these types of plan.

• For a self-employed individual with no W2 employees, the plan can be opened as late as April 15^th for contributions in the prior tax year (e.g. April 15^th, 2027 for contributions in the 2026 tax year).
• For a firm wanting to launch a plan effective next year, the de-facto deadline is going to be December 1^st, as there are minimum notification periods to potential employees that must be satisfied that are unavoidable later on into December.
• For a firm wanting to launch a safe-harbor plan with contributions effective in the current tax year, the same guidance as item 2 applies, but often practical matters require the plan to start earlier in October or December.

In practical terms for options 2 and 3 above, because many 401(k) bundled platform providers (e.g. Guideline, Human Interest, Vanguard, etc.) have deadlines much earlier than the statutory deadlines that effectively make it so that you have to look at launching a 401(k) plan as a process that typically will take 45-90 days. Other plans such as 403(b)s are no different in terms of their “legal and literal” deadlines rather than their practical de-facto deadlines when vendors come into the picture.

“Other” Plans: There is a whole catalogue of other less common retirement plans for small businesses to take advantage of, such as Pension plans, Cash Balance plans, and so on. We won’t discuss those too much today because, in practical terms for our average reader, these are the types of plans you don’t think about opening for yourself or your business unless you’re already working closely with a financial planner. If you happen to be one of those people, it doesn’t hurt to ask! But if you’re just wondering what it actually takes to set up a Pension plan for a small business? Avoid that rabbit hole.

Charitable Bunching

2025’s One Big Beautiful Bill Act (“OBBBA”) threw a wrench into the charitable donation game. In particular, prior to the OBBBA, charity was largely out of the good of your heart, and tax benefits from donations were restricted generally to either state benefits (e.g., Colorado’s Child Care Contribution Credit) or otherwise for those donating a significant amount. Under the OBBBA now, those filing a standard deduction ($16,100 single, $24,150 head of household, $32,200 married filing jointly) can claim a deduction on their taxes of up to $1,000 for single and head of household or $2,000 for married filing jointly households.

For those itemizing, there’s now a bit of an inversion to the old arrangement. While you had to donate a lot to potentially get pushed into itemized deductions previously, you now have to clear a hurdle of 0.5% of your adjusted gross income to qualify for any deduction at the federal level for charity. So for example, someone with $100,000 of income in a given tax year would need to donate more than $500 to get any deduction. The deduction itself is then on the amount greater than the 0.5% adjusted gross income hurdle (e.g., donating $501 dollars in the example results in a $1 tax deduction).

This leads us to the strategy of charitable bunching: taking what might be several years worth of habitual charitable intent (tithing, payroll donation deferrals, regular gifts to causes you care about, etc.) and push you in the direction of wanting to go ahead and lump them into a single year. Specifically, you can either make the simple beneficial act of donating money all at once to a cause or causes in the single year, such as donating $5,000 all at once rather than donating $1,000 for the next five years. Alternatively, for those who want the tax benefit but don’t want to commit all that money to a particular cause at the current moment, a donation to a donor advised fund can permit donors to drop a chunk of money into an account in a given tax year, “bunch” the deduction into the same tax year to more effectively clear the adjusted gross income hurdle, and then pay out donations to charities over time and at their discretion.

Qualified Charitable Distributions

Another option available to donors faced with required minimum distributions from their pre-tax retirement accounts can be the qualified charitable distribution, or “QCD.” Those donors seeking to use a QCD must be of an eligible age to take required minimum distributions (e.g. 70.5 years or older at the youngest, 73 now in practical terms, and 75 in the future). The donation mechanism is simple: you directly donate to a qualified 501(c)3 charity from your pre-tax traditional IRA or IRA Rollover (note, SEP and SIMPLE IRAs are not eligible, nor are 401(k) plans or other ERISA plans).

Because the QCD is going straight into an eligible charity, you can deduct the full balance of the donation (whether you are an itemized filer or standard deduction tax filer), but more importantly, the donation helps satisfy required minimum distributions. Thus, for those who find themselves charitably inclined but also facing the tax bill of a required minimum distribution, the QCD presents an opportunity to solve two problems at once: satisfy the RMD while avoiding the otherwise required taxable income, and donating 100% of those pre-tax dollars to a charitable cause rather than paying taxes on the income and then donating the remainder.

Roth Conversions

A tricky tax strategy that doesn’t work for everyone, Roth Conversions can be a hugely powerful tool in the tax planning arsenal when applied correctly. For those not familiar with the concept, the mechanism is simple: under existing tax law, there is no limit to how much money from pre-tax retirement accounts can be converted into the Roth equivalent of those retirement accounts (i.e., IRA to Roth IRA, 401(k) to Roth 401(k), etc.) Consequently, Roth Conversions give retirement savers an opportunity to convert future taxable retirement dollars into untaxable Roth dollars, provided they can pay the tax bill at the time of the conversion.

The conversion itself is subject to income tax, which can present a tantalizing tax trap: many looking to perform a Roth conversion may not have extra cash on hand to pay the taxes, which leads them to try to use pre-tax money to pay the tax bill. Be careful! Because using pre-tax money to pay taxes is itself a taxable event. For an easy example, if someone was in a hypothetically endless 10% tax bracket, they’d find themselves with the following scenario: Distributing $10,000 means you have a $1,000 tax bill. Using $1,000 of pre-tax money to pay that tax bill means that you then have a $100 dollar tax bill on that $1,000 pre-tax income. Having $100 in pre-tax income to pay that tax bill means you have another $10 tax bill. You get the idea. Now imagine using a more common tax rate like 22% and playing the same compounding math game. For someone in the 37% tax bracket in Colorado, something like a $10,000 distribution could cost as much as $17,064.84 to distribute!

So, Roth Conversions only make practical sense in lower income years where there is room in a low tax bracket to fill up. For example, if someone is a married filing jointly tax filer this year, the 12% tax bracket lasts up until $100,800 in taxable income. Throw the $32,200 standard tax deduction on top of that, and we’re looking at $133,000 of gross income before we’d jump up to the 22% tax bracket. With that in mind, if a tax filer finds themselves in December with only $80,000 of income year to date, then it might make good and practical sense to perform a Roth Conversion of up to $53,000 in the 12% Federal tax backet so that way that money is protected from future taxation. But because such a conversion would come with an $8,480 tax bill of combined Colorado and Federal taxes, the person completing the conversion would only benefit under two conditions:

• They have $8,480 sitting around in a non-retirement account to fund the tax bill.
• They anticipate that the money converted will grow to $8,480 and more within a reasonable period of time, such that they’ll recoup paying the taxes early and ultimately benefit from a lifetime of greater tax-free wealth.

As noted at the start of this section, the Roth conversion is a tricky tax strategy that doesn’t work for everyone. Not everyone has cash lying around to pay tax bills rather than using pre-tax dollars to pay the tax bills that come with the strategy, and not everyone will be in effective tax brackets or have a life expectancy and therefore timeline to actually enjoy the benefits of a Roth conversion. Thus, long term tax planning is required to really validate whether a Roth conversion is a good plan for anyone!

Gifting & Transfers

While everyone enjoys a $15 million dollar lifetime gift tax exemption (for gifts made by them to others), most of us would rather avoid the hassle of filing a gift tax return, even if it doesn’t come with a tax bill. Consequently, the annual gift exemption is a popular option for those with extra money they’d like to share with their family. The current gift exemption is $19,000 per gifter to giftee. Thus, an individual can give another individual $19,000 in any given tax year without causing a gift tax filing requirement. But wait, there’s more! A married couple can gift twice as much (two people gifting $19,000 to one person), and a married couple can gift twice as twice as much if they’re gifting to a household, e.g., two married people gifting to two married people might gift as much as $76,000 in a given tax year. Not bad!

For those interested in funding things like college savings plans for their kids, grandkids, or other family members, the gift limitation can be even greater. 529 plans permit superfunding of up to 5 years’ worth of gifts all at once (subject to a following 5-year restriction on further gifts). This means an individual can gift as much as $90,000 in a given tax year to an eligible 529 plan beneficiary through the 529 plan, and a married couple could gift as much as $180,000. Not bad at all!

Keep in mind with gifting as well that sometimes the purpose of gifting can simply be to move taxes around a larger family (e.g. from a wealthier parent to a less-wealthy adult child), such as transferring appreciated stock in-kind to their adult child. If the parent is faced with something like the 20% long term capital gains tax bracket, gifting shares of appreciated stock to an adult child who would otherwise be in the 0% long term capital gains tax bracket or the 15% long term capital gains tax bracket can put them in a position to reduce the tax bill measurably for both parties, since the beneficiary receives the gift of the asset and the grantor of the gift doesn’t end up eating a higher tax cost as a result. Bear in mind: the cost basis transfers with the security, so the taxes due will be on the difference between the purchase price and the current fair market value, not the gross value of the asset, but the gift tax exemption is still based on the gross value of the asset.

Tax Loss & Tax Gain Harvesting

Tax loss harvesting is an oldie but a goodie strategy. It’s popular, so we’ll refresh briefly: You sell an investment at a loss, booking a tax deductible loss, and then reinvest in something similar but not identical (for example: selling an S&P 500 index fund and then buying a US total stock market fund; not identical, but likely to perform very similarly.) These losses can then be used to write off against earned income (up to $3,000 annually), written off against other capital gains incurred in the same tax year, or carried forward to future years to write off against future gains.

The less well known option then is tax gain harvesting. Following the same logic as the tax loss harvest, the tax gain harvesting option is used to book tax-free 0% long term capital gains taxable gains. For example, a couple with $50,000 of income for the year, there is another $48,900 of long term capital gains that they could realize before the end of the year that would be taxed at at the 0% tax rate. Thus, selling an investment at a taxable gain equal to or less than $48,900 would result in allowing you to reinvest the proceeds of the sale without having any recognized taxable income from the sale, thus allowing you to again sell the investment capital reinvested in another asset in the future while eliminating or reducing future taxable income had you not booked the earlier tax gain harvest in the first place.

Things not actually tied up in the 4^th quarter

Believe it or not, not everything tax-advantaged lives in the calendar year. While we’ve already made mention of the flexibility plans like SEP IRAs and Solo 401(k) plans grant in this area, even the classic retirement savings options like traditional IRAs, Roth IRAs, and Health Savings Accounts (HSAs) can be contributed to after the end of the year. For last minute savers who are eligible based on income, employer plan eligibility, or healthcare plan, any of these options can be funded as late as 4/15. Perhaps the more important part of these options aren’t the actual ability to get a deduction, defer taxes, or eliminate future taxes, but ensuring that contributions are made compliantly.

Deductible traditional IRA contributions are often harder to obtain than you’d think. First and foremost, to make retirement plan contributions you must have an earned income that can be deferred. Thus, for folks in retirement or living on social security or pension benefits, contributions to retirement plans aren’t an option unless you’ve picked up some part time work to earn an income that can be contributed for tax benefits. Further, for those still working for an employer offering a retirement plan or with a spouse working for an employer with a retirement plan, there are income caps that can limit or eliminate the ability to make a tax-deductible IRA contribution. This is very important, because you can still make a contribution into a traditional IRA even if you’re above these income caps. The problem is that the contributions are non-deductible, and thus create an after-tax basis in your IRA that becomes subject to the Pro Rata rule. We won’t detail that here for the time being, but succinctly, you want to avoid it!

For Roth IRAs, there is an income cap that is much higher than the deductible IRA income cap, but notably if you exceed the Roth caps you either have a reduced maximum contribution or no direct contribution permitted at all. If you are in this range or above the line, you can still get money into a Roth IRA, but here the timing matters! The mechanism for performing such a “back door Roth contribution” is that you make a non-deductible after-tax contribution into an IRA and then perform a Roth conversion shortly thereafter into the Roth. This is perfectly acceptable, but keep in mind that the conversion is taxable in the year it occurs. So even if you plan to fund a back door Roth contribution for 2026 and you try to do so between January 1^st and April 15^th of 2027, the after-tax contribution to the IRA is permitted for 2026, but the conversion will end up being taxable in 2027. Thus, for those looking at a back door contribution for 2026, the contribution and the conversion must be completed before December 31^st!

Finally, for HSAs, the only real criterion of concern is this: are you covered by a high deductible healthcare plan? While the rules for this are often easy to find, e.g. an individual plan must have a deductible no less than $1,700 and an out of pocket maximum no greater than $8,500, and a family plan must have a deductible no less than $3,400 and an out of pocket maximum no greater than $17,000, there is one other requirement many miss, which is this: some health insurance plans can come with $0 payments for certain benefits, which sounds great, but makes them ineligible as high deductible healthcare plans. An authentic, HSA-eligible HDHP must have no benefits before the deductible is met, other than applicable discounts or ACA-approved free annual exams. Thus, beyond examining the deductible and out of pocket maximum, be sure to review the plan for whether it explicitly disclaims first dollar benefits before making contributions to an HSA.